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I read a disturbing article at CNN Money today titled A Last Chance to Get Rich in Real Estate? The article profiled a real estate investing “university” called Nouveau Riche. This unversity sells real estate investing services and products to those who want to use real estate to achieve financial freedom.

At first glance it seems innocent enough, after all there is an entire industry of so-called gurus explaining how anybody can not only get rich in real estate but do so with no money down. But after reading further, it becomes increasingly clear that Nouveau Riche is setting people up to fail.

Here are some excerpts from the article and my comments:

In April, Cuevas plunked down tuition of $16,000 and attended a weeklong program in Phoenix. …emboldened by her instructors and an advisor assigned by the university, she [bought] - sight unseen in one case - three investment properties through a real estate agency controlled by Nouveau Riche.

A couple of things to look at here. First, I think $16,000 is outrageous for a week long education on real estate. She could have spent a tiny fraction of that money on real estate books and learning her local market to find out where deals could be had. Second, she purchased real estate through this company SIGHT UNSEEN. So, not only did they get her $16,000 tuition payment, but they also got the commission on the selling of these properties.

Nouveau Riche borrows heavily from the investment philosophy…by real estate guru Robert Kiyosaki…Like Kiyosaki, Nouveau Riche teaches that working for a salary is a fool’s game; the road to riches requires leveraging debt to amass a portfolio of income-generating properties.

I’m pretty much neutral to Robert Kiyosaki. His teachings aren’t necessarily wrong, but, like Nouveau Riche, he tends to downplay the risk involved. You can’t just throw money at real estate and plan to come out ahead.

…the buyers put 10% down, borrowing the rest using an interest-only loan. Trouble is, the rents on the condos won’t cover the total cost of owning them. No problem. Investor Concierge explains that it has arranged for the seller of the condo complex to subsidize the rent for as long as two years at above-market rates. The seller will also pay all the management fees and real estate taxes for two years. As a result the investors should be $145-a-month cash-flow positive.

Where to start? First, if it the deals are not cashflowing with 10% down and an interest-only loan, they are not good deals to start with (if you plan to rent them out). Second, one thing I didn’t catch in this quote was that this deal happened in a town in Michigan that has been hit hard with the auto industry slowdown. Their inventory of unsold homes has multiplied over the past couple of years. Also, what happens when the subsidy ends? Will there be anybody left in two years to rent to?

With enough effort, real estate investing is certainly a viable way to become wealthy. It has many great advantages over other types of investing such as:

• Favorable tax treatment
• Ability to leverage
• Ability to influence value more directly than some other assets (such as stocks)

However, before investing, it is important to understand what you are getting into. Don’t follow the lead of salesmen when putting your financial future at risk. Read some books that pertain to the method of real estate investing you want to pursue such as foreclosures, tax lien certificates, notes, etc. Next, understand your local market, so, when opportunities arise, you can identify them and act upon them.

For further reading, check out my article Tips to Avoid a Bad Mortgage.

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